Will your employees REALLY understand the Lifetime ISA?
This new savings vehicle is bound to attract much media interest, given that savers in the product will benefit from a government “bonus” contribution to help towards their first home purchase, or retirement savings. This heightened media noise will doubtless lead to a surge in interest from workers keen to gain a foothold on the UK housing ladder.
Some of these savers will of course be able to save in both a pension scheme and a Lifetime ISA, but for many with limited funds it could be a binary choice between LISA and pension savings. Indeed, the 2017 Jelf Employee Benefits Survey found that over a quarter (26%) of employers expect some employees to save in a Lifetime ISA instead of a workplace pension.
What makes this information particularly concerning is that the Lifetime ISA has significant limitations when viewed from the retirement savings perspective. LISA savings will not benefit from a company contribution, and the government support is capped at £1,000 per annum and (effectively) limited to Basic Rate tax-relief only. It should also be noted that the contributions to a Lifetime ISA must cease at age 50.
It is perhaps unlikely that many workers will appreciate all these differences, and the 2017 Jelf Employee Benefits Survey found that 3 in every 4 employers (75%) do not believe their employees will fully understand the limitations of the LISA offering.
The bottom line is that the headline messages and media noise around LISA may encourage some employees to make possibly ill-informed decisions, including the possible redirection of their pension contributions to the alternative product. This is yet another example of where Financial Education in the Workplace will be of huge assistance to employees, and we would therefore encourage employers to look at including this message in any such communications.
For more information on any of the above please speak to your usual Jelf consultant in the first instance or visit our Workplace Savings section.